Dutch Tulips, The Boston Massacre, and Housing L.A.’s Poor
by David Deutsch
Bubbles, bubbles everywhere, and not a pop to blink. There is a phrase that goes something like that, but the original version escapes me now.
Economic bubbles (and their associated mass hysteria) are fascinating phenomena. They have manifested themselves in myriad ways throughout Western history, mostly leading to pretty bad consequences. But by looking at them from a different perspective, we might find some clues to solving L.A.’s housing problems for the poor.
Bear with me: my friend Mike Plunkett recently penned a very personal experience regarding our most recent national hysteria: the housing market. At the time, speculators generally went through the following mental processes: “OHMYGOD I have to buy the real estate and OHNOES if I don’t buy a house right now everyone else will be rich and I’ll be left in the dust and ZOMG only an idiot wouldn’t buy a house right now.” You’ll remember before that was the dot-com bubble, where everybody believed that the Internet was so revolutionary, so amazing and so colossally different from everything else before ever that nothing, not even market economics and the laws of supply and demand, would ever be the same, and besides those rules are so old economy, and thought, “OMYGOD I have to buy a pre-IPO dot-com stock and OHNOES if I don’t buy www.zenwnoaneapa.com right now ...” You get my drift.
Take heart, Mike and my fellow Angelenos, you are not alone. You got caught up in mass hysteria that has repeated itself in countless ways through the centuries. And once the panic subsides, we end up with a collective mental narrative that goes something like, “Man, that was really stupid. We have learned this time our lesson and we’ll never do that again.” Each time.
And before we know it, we start all over again with “OMYGOD if I don’t get into the half-fertilized-Japanese-razorfish-caviar market right away ...”
Wash, rinse, repeat, wash, rinse, repeat ...
A Brief History of Bubbles
pamphlet from Dutch tulipomania
As I said, these economic bubbles are not new phenomena. In fact, the first recorded incident of bubbles came from Holland, of all places, and involved tulips, of all things. With their pretty windmills and rich chocolate, who would ever think anything bad could come from there? When tulips were all the craze, the 16th century Dutch gave us the first recorded economic bubble. British Journalist Charles Mackay discussed the Dutch tulip bubble in a book he wrote in 1843, some two hundred years after the phenomenon allegedly took place. While some question the veracity of Mackay’s research, there is at least one thing that makes me believe he was not far from the truth: his description of Dutch behavior is remarkably similar to Americas’ recent mania. People got so worked up about tulips that people reportedly paid more money for a single tulip bulb than for a house. There was even the equivalent of a “tulip futures” market where people bought bulbs and said they planned to plant them at some point in the future. (If you think this is crazy, remember how rational it was to buy a stock at 800 to 1 price-to-earnings ratio, or take out loans at exorbitant interest rates with below-interest payment terms just to buy a teeny weeny house for $2 million?) Naturally the tulip bubble burst, people lost everything and the Dutch economy took years to recover. Again, does this pattern seem familiar?
Understanding why this took place and why it continues to take place is indeed fascinating, and again it may have implications for housing L.A.’s poor. But this phenomenon is by no means limited to economic activity. Many events have provoked overreactions throughout the centuries, including, but not limited to: the Salem Witch Trials, lynching throughout the South, and the California Gold Rush (which could be classified as a bubble in its own right). I would like to focus for a moment on the Boston Massacre and the overreactions from that tragedy, which ended up causing the American Revolution; most Americans are familiar with the story but may not be aware of the outcome of the trial.
the Boston Massacre: engraving by Paul Revere
On March 5, 1770, five civilians were gunned down by British troops on the streets of Boston at a time when the British Crown was being increasingly seen as an oppressive force in daily life. This event is widely credited as one of the major events that sparked the American Revolution. Tensions ran so high at the time that, although the British soldiers were to receive a fair trial, no lawyer in the area wanted to represent them. So, the town called attorney—and future President—John Adams to represent the soldiers in court. (Imagine if Barack Obama had represented the alleged terrorists in Guantanamo Bay in court. Do you seriously think he’d be a Presidential contender? My, how things change.) During the trial, it was discovered that most of the soldiers who fired were reacting in self-defense, as a massive mob surrounded them and threatened them with assorted weapons. Six of the soldiers were acquitted when the jury found that they were acting in self-defense, and four soldiers were found guilty of manslaughter, a relatively minor charge given the reaction at the time. Regardless of the trial’s outcome, the Massacre acted as a major catalyst for the American Revolution and was used heavily as anti-British propaganda to justify American revolt.
Clearly, there are many examples of bubbles and/or overreactions: tulips, black cats, witchcraft, massacres, gold and silver rushes, and in our own day, Internet startups and of course sub-prime mortgages. But what does any of this have to do with housing L.A.’s poor?
I am not a social psychologist nor a sociologist, and certainly lay no claim to understanding these overreactions we seem to fall into over and over again, like lemmings off a cliff. But I will pose a question to the FourStory community, especially those of you with a background in social psychology and sociology: Is there a way for us to harness the power of these overreactions to affect positive outcomes? Can we tap the mass hysteria and rally our community to a greater cause, such as helping the poor? If there is a way to do this, would anybody out there know where to begin? What event could trigger such a movement? And, what could be done to mitigate the effects of an overreaction which could end up unintentionally hurting those we seek to help?
Please e-mail me with your thoughts. If by some miracle enough people respond, I will write a follow-up article and filter through some possible solutions on how to harness the power of bubbles for good ends.